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Arbitration: London's Loss, Bermuda's Gain?
London & Bermuda Newsletter
Bermudian insurers generally favor arbitration over court proceedings as a means of resolving disputes with their policyholders. Typically, arbitrations are subject to the supervision of the English or Bermuda courts, with final arbitration hearings taking place in London or Bermuda.
Despite the obvious convenience to both insurers and US-based policyholders of having arbitrations determined in Bermuda as opposed to London, historically several Bermuda insurers and brokers have preferred London arbitration to Bermuda arbitration based on the following perceptions: stronger judicial support of arbitrations by the English High Court; better arbitration facilities in London; “neutral” venue without “hometown” advantage to insurers of Bermuda arbitrations. In the writer’s view, all three perceptions are misconceived: Bermuda now has several experienced commercial judges (and a designated Commercial Court) with a record of supporting the arbitration process; Bermuda still has several first class hotels equipped to host international arbitrations; arbitrators in Bermudian arbitrations are required by statute to be neutral and typically hail from outside Bermuda, thus eliminating any possibility of bias toward the Bermuda insurer.
Following a recent decision of the European Court of Justice (ECJ), it has been suggested that Bermuda now has a clear advantage over London in one material respect: the general availability of an “anti-suit injunction” in support of arbitration. An anti-suit injunction is a court-issued order (backed-up by the threat of breach amounting to a contempt of court) that prevents a counterparty to an arbitration clause from issuing court proceedings in violation of the parties’ contract.
In Allianz SpA v West Tankers (the “Front Comor”) (February 10, 2009), the ECJ recently reviewed the use of anti-suit injunctions by the English court to protect arbitration agreements, holding that anti-suit injunctions are incompatible with Brussels Regulation 44/2001, dealing with the allocation of jurisdiction between member states of the European Union (EU). The effect of the ruling is that if an insurer with a London arbitration clause is sued in, say, the Italian courts, the insurer will no longer be able to apply to the London High Court for an order compelling arbitration but will instead have to apply to the Italian court to dismiss the court proceedings.
While it is a significant decision, the Front Comor ruling is likely to have only a limited impact on Bermuda insurers employing London arbitration provisions. First, it does not impair a party’s right to seek an anti-suit injunction in relation to court proceedings commenced in a non-EU state (most notably the United States). Second, most European insureds will not seek to issue court proceedings in violation of an arbitration clause, particularly when most EU courts enforce arbitration agreements (and thus enforcement proceedings will only lead to delay and additional expense for the insured).
Nevertheless, the restricted ability of the English court to issue an anti-suit injunction is something that should be placed on the scales when a Bermuda insurer is weighing up whether to seek a London or Bermuda arbitration clause in its wording. In the case of policyholders based in Europe, or non-European policyholders with significant European subsidiaries, the implications of the Front Comor may well justify the insurer arguing for the inclusion of a Bermuda arbitration clause.
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